Tuesday, 14 January 2020

Why This Warren Buffett-Backed Electric Car Stock Is Surging



China said subsidies for electric cars will stabilize this year after cuts took a toll on sales last year, sending Warren Buffett stock BYD (BYDDF) flying Monday to lead gains among electric car stocks.

Handouts to stimulate "new energy vehicle" sales won't be cut July 1, as they were on the same date last year, a government official told Bloomberg Saturday. Sales of new electric cars and hybrid cars went on to decline for six months after last July's subsidy cut.
The minister later amended his statement to say that "subsidies on new-energy vehicles will stay relatively stable this year, and they won't be scaled back significantly."
That still lifts a big drag from electric car companies. Last year, BYD warned profits could crater 43% amid the subsidy cuts.
Buffett bet $230 million on China's BYD, then mostly a battery maker, more than 10 years ago. Berkshire Hathaway (BRKB) now owns 25% of the company. BYD — an acronym for "Build Your Dreams" — has since expanded to become a maker of electric and hybrid cars, trucks, buses and vans as well.
BYD announced last year a tie-up with Toyota Motor (TM) to develop all-electric vehicles. Unlike Tesla (TSLA) and Nio (NIO), BYD targets the mass market in China rather than than the luxury end.
But challenges remain in China: Beijing began subsidizing electric car sales in 2009 and has been reducing handouts ever since, to prod companies to compete on their own.
Without these subsidies, automakers confront additional pressure on their returns in that country after their "considerable investments in electrification," Deutsche Bank analyst Emmanuel Rosner said in November.

Warren Buffett Electric Car Stock Soars

BYD stock surged 15% to close at 5.74 on the stock market today, and Berkshire Hathaway stock added 0.8%. Tesla which began deliveries of Chinese-built electric cars this month, jumped 10% Monday as Oppenheimer hiked its price target to 612 from 385. Among other electric car stocks, Nio advanced 5.4% and Kandi (KNDI) added 1.2%.
Meanwhile, Ford Motor (F) joined General Motors (GM) in warning sales will continue to be weak in the world's largest auto market.
Sales tanked 26% to 567,854 vehicles in 2019, including a 14.7% Q4 drop. The"downward trend of the industry volume will continue in 2020," said Anning Chen, CEO of Ford Greater China. "We will put more efforts into strengthening our product lineup."
Last week, GM China posted a 15.1% sales decline  for 2019 and 13% for Q4. General Motors also expects the downturn in China auto sales to continue this year and said it "will keep up its launch cadence."
GM's China sales have now fallen for two straight years and Ford's for three. The overall China auto market shrank for the first time in decades in 2018, amid a weaker economy and the U.S-China trade war. China car sales are expected to fall a further 8% in 2019 and 2% in 2020.

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